Geoff Miller’s GLI Finance has had an active few days – it’s just announced that its investing in a whole new swathe of alternative finance businesses, in the UK and beyond ! GLIF is rapidly turning into the most aggressive investor in the AltFi space, with a global mission to transform SME funding. AltFI’s David Stevenson caught up with GLIF’s CEO Geoff Miller (via email) in North America at a major event in Florida.
Walk us through the major announcements coming on Tuesday.
Reflecting the rapid transition of the business from a provider of SME finance through third party loans to providing SME finance through strategic relationships with a variety of alternative finance platforms, we have agreed to add a further six platforms to the ten already within the GLI Finance family, and announced the development of a further pan-European platform. To provide funding to these and our existing platforms, both to develop the platforms themselves and to provide the lending capacity we have also announced that we are taking on a £30m loan facility, which has been arranged through our offshore peer to peer platform, Sancus.
Three of the six new platforms are in the US, reflecting the importance of the US SME finance market as by far the largest in the world. Firstly there is The Credit Junction, a marketplace supply chain finance lender; secondly LiftForward, a marketplace lender providing organisations with whom SMEs have a relationship the opportunity to provide finance to those SMEs, and last but not least TradeRiver USA, the US affiliate of our UK-based online trade finance platform.
One of the new platforms is in Europe, as is the one we have in development; we acquired a stake in Finexkap, a new French receivables business that intends to securitise the receivables it originates to simplify the funding in July, whilst we are working with Finpoint Germany to develop a pan-European version of its platform (that we already successfully operate in the UK as a JV) across Europe.
One of our new platforms sees us venturing outside of the UK, US and Europe for the first time, into sub-Saharan Africa. This business, Ovamba, is a peer to peer lender that will build a business to provide short term lending sourced through existing financial institutions, funded primarily by the diaspora of the country being served.
Finally we have an additional UK platform, UK Bond Network, the first peer to peer bond provider, complementing the range of SME finance options we currently offer within the UK.
What's the strategic logic behind these various global moves?
Firstly on the acquisitions it is important to understand what we are trying to achieve. Rather than looking to compete directly with the banks, we are seeking to exploit the areas of SME finance that do not work for the banks any more, whether it is from a complexity perspective, a risk perspective or a capital perspective. I believe that this is extremely important as the alternative finance industry scales – I would rather work with the banks to enhance the level of service that they provide to their customers, rather than attempt to convince SMEs that they should move away from their main banking relationship. All of our new platforms meet this criteria, bringing high quality underwriting, expert product structuring and innovative funding structures, that we can take across our family of businesses and enhance the workings of all.
In addition to this, we have also wished to diversify the business geographically, and we now have a significant presence in the US and Europe as well as the UK. We manage our business in sterling, but utilise the diversity of the business, as opposed to any form of hedging, as a way to de-risk our currency exposure. Being the only alternative finance company that spans the major alternative finance geographies, we believe that we can build an unparalleled business. Already we have examples of our new US platforms developing partnerships with those we have in the UK, to provide multi-national solutions that would not be possible were we to stick to the UK.
Will you need additional funding to achieve your strategic objectives?
As I mentioned, we have put in place a £30m debt facility, sourced through one of our peer to peer platforms. It is a great example of just how scaleable the alternative finance industry really can be. There is the potential to fund a multiple of the current size of the peer to peer industry from the existing investor base and the investor base is growing every day. Having the ability to access debt as well as equity markets will be important is us growing our business, to optimise our own cost of capital. Having the ability to access debt through our peer to peer platforms also helps ensure that we keep more traditional providers of finance to businesses such as ourselves on their toes.
GLIF is now turning fast into a sizeable group of businesses - won't it require more of a central control structure or are you planning to run everything at arms length?
We do not get involved in the day to day operational management of our underlying platforms, but I do sit on the Boards of all of the companies. In two weeks' time we have a new member of the executive team, Marc Krombach, joining us as Managing Director. The intention is for Marc to assist me in the strategic development of the businesses whilst Emma Stubbs our CFO and her team will make sure the numbers add up, but also manage risk, regulation and compliance. The next year is going to be about helping all of our businesses develop into fully fledged market leading SME finance providers. This will need the management of each platform to deliver operationally, and where we will come in is the strategic positioning of the business in the market. There will be deals to consider, new product areas, perhaps new geographies and we can be of assistance in looking at these, as well as ensuring a conversation with Governments, industry bodies and regulators is two way one and open for our platforms.
Where next for GLIF? New geographies, new niches?
We need to build the platforms that we now have within our family, and that will mean adding geographies in some cases, and in some cases new products. I think the next year will start to see meaningful deals with banks and other financial institutions to work together and M & A opportunities, together with bringing in management teams that can add further strings to a platform’s bow.
What kind of businesses are you looking to invest in in the future?
We are now in the fortunate position that we don’t need to do any more deals, we have the footprint that we need to do anything we want in our chosen geographies. We have had conversations with national and supra-national institutions about developing our platforms elsewhere in the world and that is a distinct possibility, providing we have local partners with whom we could work. Closer to home we are likely to see niche businesses that we work with to add value to our existing platforms, so not a further platform per se but perhaps something that allows us to capture a further part of the value chain. I can’t be more specific until I have inked a deal, because this is a very competitive space these days!
Do you think the UK government could do more to encourage the growth of the alternative Finance sector?
I think the the UK Government is trying to do a lot, but it is somewhat stymied by its inability to keep up with the sector – they want to plan things months in advance when these businesses will potentially be twice their current size by the time a decision is made. To their credit those running the various programmes recognise this and are trying to address it. I have to say that I don’t think the industry necessarily does itself any favours by constantly trying to get one up on each other in dealing with Government and this makes it difficult for Government to address the industry as a whole. To address these issues the Government could provide funding on standard terms across the industry, as they do with the banks; the fact that they won’t suggests a reluctance to believe that regulation is doing its job in rooting out poorer business models, but that’s a whole other topic.
What's your take on the putative valuations put on Lending Club?
The absolute level is of far less interest to me than the fact that it is happening and will focus minds on the value that is being created in this industry. The downside is that it will only serve to multiply the number of investment bankers wanting to try to sell me and our platforms promises of heady valuations; the upside is that it will bring a wider investor base to the industry because we are dependent on investors, institutional or individual, in one form or another for our businesses to work.
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